Tag Archives: Saad Hariri

Here is my take onthe National Dialogue discussions that began today in Beirut.

The National Dialogue was launched in 2006, prior to Israel’s July-August 2006 war against Lebanon, as an ambitious attempt to tackle the fundamental differences between the country’s ‘March 8’ and ‘March 14’ coalitions. The last round was held in June 2009, ahead of parliamentary elections. Today’s resumption of talks signals a thaw in internal relations that was highlighted by Prime Minister Saad al-Hariri’s state visit to Damascus in December 2009. Yet it also reflects rising tensions in the region.

The topic that will overshadow all others is a new defence strategy, and (although Hizbollah won’t like it to be mentioned) the role of Hizbollah’s weapons. The weapons topic has been shelved since the government recognised the group’s right to resistance against Israel in December. A revival of the discussion was inevitable, given its highly controversial nature.

President Michel Suleiman’s call to resume dialogue followed a February 28 report by UN Secretary General Ban Ki-Moon on the implementation of Security Council Resolution 1701, which ended the 2006 summer war with Israel. In the report, Ban urged Suleiman to push Lebanon’s parties towards consensus on a defence strategy.

Suleiman’s decision to hold meetings may also have been the result of US pressure.

Israeli threats

National Dialogue discussions coincide with heightened tensions caused by an exchange of threats between Israel on the one hand and Hizbollah, Syria and Iran on the other. The tensions have put renewed international spotlight on Hizbollah’s weapons.

The Shia party is believed to have increased its arsenal of rockets from 15,000 before the 2006 war to 40,000 today, some of which may be able to reach Tel Aviv. During a February 16 speech, Hizbollah Secretary General Hassan Nasrallah offered a new vision of strategic parity with Israel — an uneasy ‘balance of terror’ — stressing Hizbollah’s ability to strike Israel’s interior.

Nasrallah’s decision to raise the stakes has provoked fears that Israel will feel forced into pre-emptive action against Lebanon, even if no conflict breaks out over Iran.

Israeli leaders have vowed to fight ‘all’ of Lebanon in the event of an outbreak of conflict (as opposed to targeting Hizbollah alone), as a result of the movement’s participation in government.

Nasrallah in Damascus

Nasrallah answered Israeli threats by closing ranks with Iranian President Mahmoud Ahmadi-Nejad and his Syrian counterpart Bashar al-Assad when they met last month in Damascus . The meeting conveyed two main messages:

First, that Washington has failed to drive a wedge between Syria and Iran, and is unlikely to see more success in the near future. This was highlighted by the timing of the meeting, which occurred immediately after the US decision to reopen its embassy in Damascus, illustrating Syria’s newfound confidence and willing defiance.

And second that, in the event of an Israeli strike on Iranian nuclear facilities, Iran’s primary answer will be through Hizbollah and will therefore involve Lebanon.

Suleiman’s dilemma

Nasrallah’s conduct in Damascus as a ‘pseudo’ Lebanese minister of foreign affairs has drawn strong criticism from many March 14 leaders, who reiterate the sovereign right of Lebanon’s government to decide over matters of war and peace. This puts President Suleiman in a difficult situation at the National Dialogue meetings.

He will be determined to ensure national unity, having from the beginning of his tenure tried to position himself centrally. The dialogue meetings could be a means to calm tensions and avert conflict, but only if Suleiman is seen as a neutral arbiter. He must thus avoid siding too openly with March 14 against Hizbollah.

He will also need to respond to international pressure on the weapons issue. He will hope that the National Dialogue gives the impression that the Lebanese state — and not Hizbollah — still makes decisions on war and peace.

Finally, he must decide on the extent of Lebanese Armed Forces (LAF) cooperation with UN peacekeepers in south Lebanon. The two sides have recently performed joint manoeuvres on Mount Hermon, ostensibly designed to stem the flow of arms to Hizbollah. More extensive LAF cooperation with the UN could force a verbal confrontation with Nasrallah.

Outcomes

One should not expect too much from this week’s session. In reality, all parties know that, as Hizbollah demonstrated in the May 2008 fighting, its hand cannot be forced by any Lebanese party. It is also clear that no consensus can be reached in the current heated situation; and that the meeting is primarily a result of Suleiman needing to demonstrate to the West that he is doing something.

Therefore, the meetings are largely symbolic, though the stakes are high. If things go badly, the discussions could underscore the gulf between March 8 and March 14, reversing the tide of their improved relationship under the Hariri government. In any case, March 14 and others will treasure having a platform to express their deep concerns over the prospects a new war with Israel, which may in the end restrain Hizbollah. In the best case scenario, provide the platform for real negotiations in the future about a defence strategy formula that integrates Hizbollah’s weapons into the LAF.

War drums

Despite the fact that Hizbollah will not disarm and Israel increasingly sees the group as an existential threat, a regional war involving Hizbollah is unlikely in the coming months.

Having learned the lesson from the 2006 war, the group will not get easily drawn into a new conflict and will resist minor Israeli ‘provocations’, let alone staging military operations against Israel. In order to maintain national and international legitimacy, it is necessary for Hizbollah to fight a defensive war, if anything at all.

On the Israeli side, despite the usual gung-ho rhetoric, the leadership cannot politically justify an unprovoked attack on Hizbollah. It may seek an excuse, thus provoking Hizbollah into small clashes, but the latter is aware of this and will seek not to respond. The Israeli leadership will heed US warnings and refrain from attacking Iran before more diplomatic efforts have been exerted. If it does strike, it will do so no earlier than the autumn.

In the longer term, a clash is more likely — whether it arises from an Israeli strike on Iran, or some other action. Hizbollah will wait until a war fits its strategic thinking, since the need to maintain domestic legitimacy at present tops its strategic agenda. Nevertheless, these priorities are not set in stone; strategy may change should there be a shift in the balance of power within the group.

In conclusion, Suleiman faces a hard task containing the March 14 coalition’s deep reservations about Hizbollah’s weapons. If he succeeds, the National Dialogue meetings could strengthen the government. If not, Lebanon will once again appear divided, risking the stability of the fragile unity government, and increasing the chance of outside powers taking advantage of domestic divisions, as they routinely do in times of conflict in Lebanon.

After a long hiatus due to the fact that I was finishing my book, here is an analysis of the Lebanese economy. It is somewhat baffling, and a nice piece of good news from the Levant, that in a time when Western countries fear a lapse into recession, the Lebanese economy continues to thrive.

Lebanese politics ended 2009 on a positive note with the visit to Damascus on December 20 of Prime Minister Saad al-Hariri. It was the first such visit since the assassination of his father in February 2005. His visit signalled that Hariri, backed by France and Saudi Arabia, is willing to accept a regional role for Syria.

This year has started in the same vein: Druze leader Walid Jumblatt, another staunch government critic of Syria, has now moved to what he calls a ‘centrist’ position, leaving open the possibility that he, too, will achieve reconciliation with Damascus. Since regional reconciliation holds the key to national reconciliation in Lebanon, the thaw between Syria and its enemies in Beirut bodes well for national unity, political reforms and economic progress during 2010.

By Lebanese standards, 2009 was a quiet year. The chief development was the drawn out government formation process, which concluded in November with the election of Hariri to the premiership. The improvement in political stability had a positive effect on the economy, which showed signs of having completed its recovery following the politically disastrous period of 2005-08.

Thus, Lebanon saw the second highest growth rate in the region after Qatar, with government and World Bank estimates at 7%. The conservative lending strategy of its banks protected it from some of the effects of the global recession. The World Bank estimates that growth will continue at the same rate in 2010.

Moreover, bank deposits grew by 20% thanks to increased savings from Lebanese nationals living abroad. Foreign exchange reserves also increased to a record level of 28.6 billion dollars. Despite the fact that many Lebanese expatriates lost capital in the downturn, this has been outweighed by the fact that local banks are now seen as a safe haven.

Stability also boosted tourism. In the first ten months of the year, Lebanon attracted 1.57 million visitors, an increase of 42.7% over 2008. Although average spending per tourist was down on previous years due to the global recession, the tourist sector thrived on increasing numbers rather than fewer but wealthier visitors from Arab and European countries. Finally, the balance of payments recorded a surplus of 12 billion dollars, the highest in recent history.

Lebanon’s remarkable ability to prosper amid the global recession has boosted investor confidence, both at home and abroad. Yet the heavy debt burden continues to cloud the outlook: it is now estimated at 51 billion dollars, or 155% of the country’s GDP, and is expected to rise by a further 5 billion dollars this year.

Inefficiency and corruption are endemic in state institutions and must be addressed if the country is to reduce its debt. Finance Minister Raya Haffar Hassan has vowed to focus public spending in 2010 on a number of key areas.

One of them is transport. A high-speed railway has been proposed along the coast to alleviate the heavy environmental costs imposed by road traffic. New roads are also planned, with special emphasis on integrating the underdeveloped northern regions into the economy.

Another important area to address is modernisation of public education is planned in order to bridge the gap between public and private schools, and to alleviate sectarian divisions among the youth. Moreover, new power plants are envisaged to alleviate frequent power cuts and reduce high electricity prices, and the government has promised to improve efficiency of the information and communications technology sector, which is so crucial to facilitate private business activity and attract foreign investment.

Such large public projects are likely to require an increase in Value Added Tax (VAT) — a move which could undermine the government’s current popularity. On the other hand, these projects will create new jobs and further reduce unemployment, which was down from 18% in 2008 to 10% last year.

Reform of infrastructure and education are in line with the pledges made to donor states at the Paris III meeting in 2007. So far, only half of the total 7.6 billion dollars pledged to help authorities reduce the public debt, achieve reforms and stimulate the economy, has been disbursed. The remainder is tied to proposals that are still awaiting parliamentary approval, the most important of which involve privatisation. Here the government will find itself in some difficulty:

The composite nature of the coalition and deep divisions among ministers threaten to stymie economic reforms. Hizbollah, which holds two ministries, is opposed to privatisation. Its ally, Michel Aoun’s Free Patriotic Movement, controls the Telecoms and Energy and Water Ministries, seen as crucial to privatisation efforts.

Telecoms Minister Charbel Nahas has expressed concern that selling the entire cellular network to private companies could turn a public monopoly into a private one. However, the current providers will come under scrutiny and be forced to improve their services, which are among the most expensive in the world.

Although Lebanon is plagued with an acute power shortage, and the national Electricite du Liban is in poor financial shape, a viable private alternative is still lacking. This suggests that no restructuring of the electricity sector, which accounts for almost half of the national budget, is likely in the short term.

Despite these difficulties, the prospects for 2010 look good for Lebanon’s economy. Barring major political crises, the economy will continue to expand, even if sharp divisions in the government will impede its ability to conduct the much-needed economic reforms.

So, after months of wrangling, Hariri yesterday finally proposed a cabinet line-up to President Michel Suleiman, and to the whole of Lebanon’s fractured political landscape. As expected, the proposal follows the earlier idea of a unity government with a 15-10-5 division of ministries, 15 to March 14, 10 to March 8 and 5 to Suleiman’s lot.

The main problem with the proposal is that it was essentially put forward without a prior agreement – since an agreement couldn’t be found. Hariri failed to meet Aoun’s demand that he get the Interior Ministry, and that his son-in-law, Gibran Bassil, keep the Telecommunications Ministry. Hizbollah, for their part, have refrained from putting pressure on Aoun, and without that happening the old rhino is unlikely to budge. This is to say nothing of Hizbollah’s own problems with the proposal, which falls short of meeting their own demands of guarantees.

So, nothing has chnaged really. Perhaps the only thing that should make us wonder is the timing of the announcement. Of course Hariri couldn’t stall forever; something had to happen, even if he likely knew that March 8 would reject his cabinet proposal out of hand. On the other side, it is possible that there were regional strategic reasonings behind Hariri’s actions. The proposal comes while Syria, March 8’s strongest external ally, is caught up in a spat with Iraq over last month’s Baghdad bombings, for which Iraq holds Syria partially responsible. (For Danish speakers, here is a link to me talking about the Syria-Iraq controversy on Danish TV DR2 last Tuesday).

Bashar al-Asad has refused to even acknowledge the nature of the problem, and despite Turkish and American attempts to set up a joint committee to investigate the border, Iraq is taking action on its own. Since last week, Iraqi security forces have been gathering on the Syrian border in an attempt to curb infiltration of Ba’athist militants, and Prime Minister Nuri al-Maliki is pushing for a UN tribunal to investigate foreign complicity in the bombings.

If Hariri has indeed reacted to these events, which occupy local media quite a bit more than international ones, he may have calculated that Syria’s focus on its dispute with Iraq, in addition to increasing domestic and international pressures on Iran, will weaken Hizbollah to the point where it is compelled to accept his cabinet. If this is indeed the case, Hariri has made a mistake: Hizbollah’s strength or weakness is not so much relative to regional events, as we have seen before, but primarily an effect of their own perception (which is ever strong and determined). Therefore the most likely outcome of the cabinet proposal is yet more threading water for Lebanon.

My last piece onJumblatt’s defectionfrom March 14 somewhat optimistically predicted a short delay in the government formation process. Since then things have gone really sour again. Here is an analysis of the obstacles and their implications.

Since the June parliamentary elections, the March 14 coalition has failed to use its victory to dictate the terms of a new government. The negotiations have faltered on March 8’s demand for a blocking third of cabinet posts. More deep-seated disagreements over Hizbollah’s weapons and Lebanon’s regional alliances add to the complications.

In July, the two camps appeared to have agreed on a compromise solution granting 15 posts to March 14 (short of a majority) and ten to March 8 (short of veto power), with President Michel Suleiman choosing five and thus having a decisive say. However, in recent weeks disagreement over the exact allocation of ministries has taken the process back to the start, and raised the tone of personal bickering and media slander to its shrillest level since 2008.

Christian opposition leader Michel Aoun has been at the centre of the latest crisis in government formation. On August 16, Aoun demanded that his Reform and Change bloc be allotted the Interior Ministry and that his son-in-law, caretaker minister Gebran Bassil, keep the Telecommunications Ministry for another term.

This uncompromising stance has prompted March 14 to criticise Hizbollah’s inability or unwillingness to mediate. Saad al-Hariri has made it clear that he is unlikely to accept Aoun’s conditions, which means that for now negotiations are deadlocked. Unless there is truth to al-Akhbar’s story from yesterday about a Saudi-Syrian push to kickstart talks, the most likely scenario now seems to be that the deliberations over a new cabinet will be postponed until after the end of Ramadan in late September.

As ever, domestic political wrangling in Lebanon reflects regional power struggles. Courtesy of US rapprochement, Syria has moved decisively out of the cold, and returned to its favoured position as the necessary diplomatic bridge between Iran and the West. Damascus’ relations with Saudi Arabia have yet to improve, as a scheduled meeting between King Abdallah and President Bashar al-Assad in Damascus in late July was cancelled. Syria’s relations with Egypt, another key ally of Hariri, have been deep-frozen because of Egyptian allegations that Hizbollah members have been spying and plotting bomb attacks in Egypt. The first trial took place in Cairo yesterday, and the fallout is surely more bad blood between Egypt and Hizbollah.

On the other front, Assad has moved to shore up relations with embattled Iranian President Mahmoud Ahmadi-Nejad during a state visit on August 19. Here, Assad emphasised the necessity of resolute defence against Western influence in the region.

Syria’s strengthened position indirectly provoked the latest breakdown in government negotiations, when Druze leader Walid Jumblatt declared on August 2 that he would leave March 14. As I argued in my earlier piece, his aim was to hedge against Syria’s rising influence, and his defection has been widely seen as a victory for Damascus.

This is becauseJumblatt, who is known for his ever-changing allegiances, has, since 2005, formed one-third of a strong coalition of Christian, Sunni and Druze opposition to Syrian influence in Lebanon, which has dominated Lebanese politics. Although it does not sound the death knell for March 14, Jumblatt’s defection still marks a tide change in Lebanese politics and opens up opportunities for new alliances in the coming months:

First, although Jumblatt has hardly embraced the Syrians, they are in a much stronger position in Lebanon. Hariri, now left with distinctly anti-Syrian Christian allies Amin Gemayel and Samir Geagea, may feel compelled to move towards a more conciliatory position, lest he alienate his Sunni constituency.

Second, while taking no concrete action, Jumblatt has spoken with members of both March 8 and March 14, and is locating himself in a central position between the two without joining either. He has signalled that he will be associating himself with Suleiman, adding to the possibility of a strong conciliatory bloc emerging — which would mediate between the two existing groups — and may also include Parliamentary Speaker Nabih Berri.

If such a strong third bloc does materialise, Aoun may also be tempted to reconsider his alliance with Hizbollah, which has not landed him the presidency or gained him much actual influence.

The biggest decisions to be taken are surely Saad Hariri’s. As prime minister-designate, and with Suleiman preferring a neutral role, the onus is squarely on Hariri to form a government, but he is left with some hard choices following Jumblatt’s defection. He has several options:

He could of course accommodate Aoun’s demands, which would make him look defeated by Aoun and Hizbollah, but would leave March 8 with no legitimate reasons to oppose a quick government formation.

Alternatively, he could carry through a planned visit to Damascus, which has been postponed. Effectively this would mean giving up his resistance to Syrian influence on the government formation process, particularly as the Syrians have signalled that they want Hariri to visit Damascus before the cabinet is finalised.

Finally, he could continue to oppose Syrian pressure. By not going to Damascus so far, Hariri has been signalling that he intends to resist the Syrian endeavour to re-impose some sort of hegemony over Lebanon. US discouragement of such a visit and Hariri’s reluctance to do business with a regime he believes to be responsible for his father’s assassination are also playing a part. As Michael Young suggested recently, they may have also contributed to the cancellation of the scheduled meeting in Damascus between Abdallah and Assad.

In conclusion, although March 14 would like to see a new government formed, Hariri appears ready to hold out for regional events which would tip the balance in his favour. This could either be US President Barack Obama’s expected Middle East peace initiative next month. While Obama’s peace plan might deflect attention from Lebanon, it could also prompt Syria to work with Saudi Arabia over Palestinian reconciliation and accept a new Lebanese government in return for inclusion in the peace process.

Alternatively, Hariri could be waiting for the Special Tribunal for Lebanon to issue an indictment naming Hizbollah as a participant in the assassination of Hariri’s father, as predicted by the German magazine, Der Spiegel, earlier this year. This would leave Syria weakened and more eager to reach an agreement.

Whatever he does, Hariri holds the keys to further progress. If he chooses to accommodate Aoun’s demand for a key ministry, he may be able to form a new government and hence avoid the more serious choice between openly accepting or rejecting Syrian hegemony. If not, deadlock could well continue at least until the end of Ramadan.

As a small distraction from the dramatic events in Iran, and Rasmus’ great coverage of them, here is an in-depth analysis of Lebanon’s curious economy, which has been booming in the midst of a financial crisis.

Now that the elections are over in Lebanon, it is time to look forward. It is likely that the formation of a new unity government will take some time, the sticking point being March 8’s wish for a blocking third of the cabinet.

Meanwhile, let’s take a look at Lebanon’s economy which so far has shown an amazing ability to weather the international financial crises of the last year. There have been predictions lately from the Central Bank that economic growth could exceed 6% this year. The figure contradicts earlier predictions of a 2009 growth rate of 3%, down from 8% last year.

An unlikely success story

Lebanon has, indeed, been one of the unlikely success stories of the global financial crisis. The vital tourism and construction industries are booming, and capital is flowing into the country. As optimistic Lebanese leaders, bankers and businessmen have emphasised, the success is primarily due to conservative bank-lending and bank-investment regulations, limiting exposure to mortgage-backed instruments and other products that have hurt the balance sheets of other international banks, including many Gulf countries.

A result of the country’s long experience with perpetual instability in the national and regional political environment, conservative lending policies, backed up by a solid flow of remittances from millions of Lebanese abroad, have immunised the Lebanese economy from political turmoil. Apart from the months immediately following the 2006 war with Israel, the Lebanese economy has experienced uninterrupted growth since 2001.

Healthy bank sector

A few years back Lebanon’s state regulations were subjected to heavy criticism from domestic and international bankers. Now the financial crisis has turned Lebanese banks into a safe haven in the region, and the economy has thrived.

The proof is in the pudding: Bank deposits have grown steadily, rising 15% in the first three months of the year from the year-earlier period, foreign currency reserves were estimated at 17.6 billion dollars in January 2009, up from 9.8 billion at the end of 2007, and foreign liquid assets stood at 22.3 billion at the end of March 2009, a record high.

Danger signs

The banking sector’s success is remarkable but does not detract from the fact that Lebanon’s economy is well integrated into the global economy and will therefore inevitably feel some effects of its downturn in 2009. There are particular reasons for concern:

First, private investors have incurred great losses in national and international investments. The Beirut stock market alone has lost more than 5 billion dollars since mid-2008.

Second, the lack of capital investment will be felt in the crucial construction, telecommunication and service sectors in the medium term, particularly if the crisis continues throughout 2009.

Third, growth in recent years has mainly been restricted to these sectors. Although the construction sector has continued to expand in the first months of 2009, over reliance on construction is problematic because it is linked to remittances and Gulf capital.

Fourth, the stability of the Lebanese housing market depends on continued construction.

Remittances

A serious slowdown in remittances could therefore potentially start a domino effect in the Lebanese economy, hitting construction and real estate. Somewhere between a quarter and a third of Lebanon’s GDP comes from remittances from the more than 12 million Lebanese living overseas.

The IMF estimates that remittances will decrease globally by up to 10% over the next year. This means that thousands of Lebanese work in the Gulf countries, whose economies have been badly hit by the crisis. Furthermore, decreased investment from the Gulf would affect the real estate sector, which has been one of the main drivers of Lebanon’s growth.

Despite suggestions of the opposite, it is unlikely that unemployed highly skilled migrants will actually return to Lebanon and invigorate the economy as long as wages are so low. Statistics suggest that Lebanese migrant workers who have lost their jobs in 2008 have eschewed the low wages in Lebanon and instead preferred to look for work in emerging markets outside the Gulf, such as Iraqi Kurdistan and India.

Official figures suggest that repatriated capital has continued to increase in 2009 so far, but those figures could change as job losses begin to take effect. Lebanese exports to the Gulf are also expected to fall.

Public debt

The downside of Lebanon’s success story is enormous public debt, currently at 47 billion dollars, or 170% of the country’s GDP, and growing by 8%. More than 60% of that debt is locally owned, with more than a quarter of the Lebanese banks’ assets in treasury bonds. Public debt is around 60% of total credit owned by the banks which is, by international standards, very high. The Lebanese banking system is therefore highly exposed to the sovereign.

Reforms?

The state will continue to borrow heavily from local banks and international financial groups until the government adopts radical reforms to reduce haphazard spending and increase revenues. This is because the state continues to record budget deficits, in the first quarter of 2009 of 1.8 billion dollars.

On the positive side, the economy has proven capable of dealing with the negative numbers. Excessive liquidity in the local markets means that local banks will have no problem financing outstanding bonds in 2009.

Finance Minister Mohammed Shatah is one of the heroes of this situation. He has been lauded by US officials for his willingness to implement economic reforms. In April, Washington provided a grant of 50 million dollars in recognition of the Finance Ministry’s efforts to improve Lebanon’s fiscal position and set a stronger economic growth path as part of a 250 million dollar package linked to progress on economic reform.

Outlook

March 14’ victory in the June 7 elections is unlikely to detract from the overall positive outlook for the Lebanese economy. If anything, new Prime Minister, whether Fouad Siniora, Saad Hariri or a third choice, will team up with Shatah and his team of financial advisers. The result could be a renewed push for more wide-ranging privatisation.

In conclusion, Lebanon’s economy will continue to do well in the rest of 2009. This is mainly the result of clever financial policies from the central bank and a flexible banking sector. Barring a sharp fall in remittances, the banking sector will continue to safeguard against a downturn in the Lebanese economy in the short to medium term.